South African banks have closed the taps – but they should open soon

South African banks remain cautious in extending credit, but improved sentiment in the second half of the year should drive credit growth.

According to Nedbank’s latest assessment of the broad money supply and credit, growth in household credit was steady at 4.1% in February 2024 – the lowest level since March 2021, with performances of the subcomponents remaining mixed.

Home Loans were subdued, with YoY growth unchanged at 3.3% for the third straight month.

Personal loans also slowed to a two-year low of 1.1% (down from 4.2% in December 2023).

“However, credit card usage was still robust at 9.6% (from 9.2%), and overdrafts increased further (albeit slightly slower pace), indicating that households resorted to credit to supplement spending on essential goods and services,” said Nedbank’s economists.

Instalment sales and leasing finance, however, remained robust, with the overall growth rate unchanged at 7.4%.

Silver lining

Credit growth is predicted to remain subdued for the first half of the year, with demand for asset-backed credit remaining moderate in the household market due to higher debt servicing costs.

National Credit Regulator data showed a rise in credit payment arrears as pressures on households’ balance sheets mount.

The latest FNB/BER Consumer Confidence index only improved slightly from -17 in QR 2023 to -15 in Q1 2024.

“The confidence index has remained in contraction since the third quarter of 2019 and will remain fragile in the short term, given the weak growth prospects and the subdued job market,” Nedbank said.

“Consequently, households will remain cautious of borrowing and spending in the short term.”

“At the same time, commercial banks will remain wary of accelerating credit extension given stretched household finances and heightened policy uncertainty ahead of the national elections.”

Corporate demand will continue to be supported by renewable energy projects and demand for road transport, but the upside will be limited due to fading profits and high operating costs.

That said, total credit growth is expected to improve during the second half of the year as interest rates decline, political uncertainties linked to the national elections ease, and the economy recovers slightly.

“The subdued credit figures and most other recent indicators still suggest that there is unlikely to be any significant buildup in demand pressure on prices even though inflation has remained sticky in the past three months.”

Read: 40 jobs that pay more than the average salary in South Africa